Nontraditional Ways to Fund Your Startup

Dec 23, 2013 by Ryan Currie

Starting a business is difficult enough without worrying whether or not you’ll be approved for a small business loan. The government locked down funding options for entrepreneurs all the way back in 2008 and startup founders have had a lot of trouble procuring loans ever since. The good news is, there are now lots of nontraditional ways to fund your startup that don’t even involve Uncle Sam or big, picky banks.

Here are a few nontraditional ways to get funding for your startup you should consider…

Crowdfunding

By far and away the biggest change in the way startups are getting funding is the proliferation of crowdfunding. Earlier this year the gov’t loosened regulations on this new industry that made it easier for many small startups to get off the ground without having to deal with the FCC or large investors. Most crowdfunding campaigns begin with a web strategy (sites like Kickstarter are the preferred route) and get traction on social media. Startups are raising anywhere from $1000 to several million using crowdfunding (although the more you raise, the tighter the governmental regulations.)

Prepaid Sales

If your startup business plans to work in a B2B capacity it may be a great idea to try and nurture some big contracts before you ever get off the ground. Particularly if you can shell out some of the capital on your own from savings you may be able to get a few brands to prepay you for your product or service. Beware companies that are willing to prepay in addition to asking for things like royalties or equity and be sure you don’t give away too much of your business before you even start.

Angel Investors

Institutional investors generally don’t lend in amounts less than $1-$2 million dollars. Most startups (particularly tech companies with low overhead) don’t need or want that much. Angel investors help fill that gap with a smaller, less-strings-attached investment. The key is finding the right angel investor, preferably one with strategic experience who can guide your business and give you advice as you grow.

Incubator Programs

One of the all-around best ways to fund your fledgling startup is to apply and be accepted to a great startup incubator. Nearly all big cities have dozens of incubator programs accepting anywhere from 3-100 startups a year. The incentives vary – some incubators reward startups with funding and marketing while some give them a place to work and industry mentors – but they’re a good way to get objective perspectives and positioning while you’re developing your business.

Alternative Lending

Alternative lending makes sense only for a very particular set of startups. If you absolutely cannot find funding another way, specifically from traditional outlets, it may make sense to take out a high-interest loan, a bridge loan, or an invoice factoring loan. These loans are the kind that come really come back to bite you if you don’t pay them back quickly (or if your business doesn’t succeed) but they can also provide some much-needed capital quickly if you’re in a pay-or-die moment.

Getting funding for your startup is likely one of the most difficult and most important things you’ll ever do for your business. Procure money the wrong way and you could be paying for the mistake for years to come…whatever you do, never accept startup funding before you take time to research, discuss, and sleep on it!

Ryan Currie is a product manager at BizShark.com, with 5 years experience in online marketing and product development. In addition to web related businesses, he also enjoys the latest news and information on emerging technologies and open source projects.

Comments:

Ab (not verified)

Sat, 2014-01-11 00:34

I think even more important is someone who can guide the newbie on the funding options and can help him procure funds from the right place with minimum fuss

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